Tim Hazledine: The Climate Change Commission is way off course
Reminder, this is a Premium article and requires a subscription to read. Rod Carr, chair of the Climate Change Commission. Photo / Michael Craig, File OPINION The NZ Climate Change Commission has just released its report. Four hundred pages; 15,000 submissions considered; hundreds perhaps thousands of predictions, prognoses, policy recommendations; all buttressed by 700 pages of "supporting evidence", with 1000 references to technical research papers. This is an extraordinary administrative achievement, and it is deeply scary, revealing a fundamental misconception of how New Zealand's obligations to meet lower greenhouse gas emission targets should be met, in our shared battle against global warming. The first and biggest issue barely touched on by the Commission is to settle whether the target should be expressed directly as a total allowable quota of emissions, or indirectly by a carbon tax. As for how we will meet the target we are at an early stage, and we cannot know this now because the decision-makers themselves have not yet applied their creativity and ingenuity to the problem. It is farmers, other businesses, entrepreneurs, innovators, inventors, scientists, workers, and, not least, households - the whole team of five million who will get the job done, and at the lowest cost, so long as the overall cap set by the Emissions Trading Scheme (or through a carbon tax) is secure. The commission's efforts to predict what will happen in each sector are pointless not worth the code their models are written in. They result in dozens of goofy pronouncements like: "There will be fewer motor mechanics". Oh, please. Also mostly pointless, are the multitude of policy recommendations that pour forth from the report. If the real decision-makers in the economy (i.e. all those listed above) are getting the correct price signal from the ETS, then there is generally no justification for further government intervention. What should be done will be done. The main exception will be in the provision of what economists call "public goods" in particular research results that can be freely used by everyone, such as how to breed better-mannered cows. But, in any case, with the emissions price signal sorted, all proposed programmes and policies should just go through the Treasury's standard cost-benefit analysis. The commission is no help here. And - not so incidentally - the expensive scheme to subsidise purchases of electric vehicles that the commission has foisted on the current government will almost certainly fail the cost-benefit test. Around 90 per cent of the well-heeled beneficiaries of the scheme's largesse would have purchased an electric car anyway - we have just given them an $8000 present. Along the same lines, but harder perhaps for non-economists to grasp: none of the large sums of money that will be raised by auctioning emission quotas or (the alternative) imposing a carbon tax should be diverted into climate-related programmes in addition to those which will be done anyway because they pass the social cost-benefit test. These funds should be revenue-neutral. They are incurred by the team of five million, and they should be returned to them, Each billion of carbon tax or quota money would fund a $200 Christmas present for everyone on the team. Our climate change policy should be solely about climate change. "You can't kill two birds with one stone" is a cliche but it is not trite. It is true and important in almost every policy context. Yet the Commission considers it should in future "consider broader well-being factors, like eradicating poverty, safeguarding food security and addressing other environmental outcomes". Wrong, wrong, wrong and wrong. The commission claims it will be its job to "hold the government to account". No, in our democracy it is the voters and Parliament who hold the government to account. How did the commissioners get so off-target? Hubris is probably a factor, but I will pinpoint their failure to meet the statutory requirement to "have regard to a broad range of domestic and international scientific advice". In particular, they virtually ignore the substantial body of very impressive research on climate policy carried out by economists, on which of course I have drawn here. Just one of the 1000 technical references is a well-published economics article. This, by the way, rates subsidising electric vehicles as the highest-cost of all known climate policies. So, what to do? The Climate Change Commission has, in just a few months, seriously outgrown its boots. The Government should step in, and with polite thanks for their efforts, de-commission the commission. It should then persuade a super-smart mid-career research-grade Kiwi economist tough-minded but humble (they do exist) to take the reins of a slimmed-down secretariat. Tim Hazledine is a professor of economics at The University of Auckland Business School. Reminder, this is a Premium article and requires a subscription to read. It's been 22 years since the terrorist attack on the World Trade Centre in New York.